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Timing income and expenses can impact tax liability from "summary" of Tax-free Wealth by Tom Wheelwright
Timing income and expenses play a significant role in determining your tax liability. By strategically timing when you receive income and when you incur expenses, you can effectively manage your taxes and potentially reduce what you owe to the government. For example, if you expect to be in a higher tax bracket in the coming year, you may want to delay receiving income until the following year when you anticipate being in a lower tax bracket. This can help you minimize the amount of taxes you owe on that income. Conversely, if you expect your income to decrease in the future, you may want to accelerate income into the current year to take advantage of lower tax rates. Similarly, you can also time your expenses to maximize tax benefits. By strategically timing when you incur deductible expenses, such as business expenses or charitable contributions, you can offset your income and reduce your overall tax liability. For instance, if you know you will have significant medical expenses in the near future, you may want to schedule those expenses in a year when you expect to have higher taxable income to maximize the tax deduction. In addition to timing income and expenses, you should also consider the timing of investments and retirement account contributions. By contributing to retirement accounts before the end of the year, you can reduce your taxable income for that year and potentially lower your tax bill. Similarly, timing investments to take advantage of capital gains rates can also help minimize your tax liability.- Understanding how timing income and expenses can impact your tax liability is essential for effective tax planning. By strategically managing when you receive income, incur expenses, and make investments, you can optimize your tax situation and keep more of your hard-earned money in your pocket.
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